Qualified Personal Residence Trusts: Transferring Your Home While Minimizing Estate Taxes

Unlock Hidden Estate Tax Savings: How a Qualified Personal Residence Trust Can Protect Your Home and Your Legacy

For homeowners with significant wealth, your residence may represent one of your most valuable assets—and potentially your largest estate tax liability. As estate tax exemptions face uncertainty and property values continue to rise, savvy estate planners are turning to a powerful but often overlooked strategy: the Qualified Personal Residence Trust (QPRT). This sophisticated estate planning tool allows you to transfer your home to your heirs while minimizing gift and estate taxes, all while retaining the right to live in your property for years to come.

Understanding the QPRT: A Strategic Estate Planning Tool

A QPRT is an irrevocable trust designed to reduce the amount of gift and estate taxes typically incurred when transferring a personal residence to beneficiaries. By transferring your home into a QPRT, you can continue living in it for a specified term while passing it on to your heirs at a reduced transfer tax cost. The beauty of this strategy lies in its ability to “freeze” the value of your home at the time of the trust’s creation, potentially shielding any future appreciation from estate taxes.

Here’s how it works: You decide on a fixed term (e.g., 5, 10, 20 years) during which you retain the right to live in the home. After this term, the residence passes to the beneficiaries designated in the trust. The gift value for tax purposes is calculated by taking the current fair market value of your home and subtracting the value of your retained right to occupy it during the trust term.

The Current Tax Landscape Makes QPRTs More Relevant Than Ever

The timing for QPRT planning has never been more critical. The exemption amount for people who pass away in 2025 is $13.99 million (up from $13.6 million last year). Married couples can expect their exemption to be $27.98 million (up from $27.22 million last year). However, recent legislative changes have created both opportunities and urgency for estate planning.

While the “One Big Beautiful Bill Act” has made permanent increases to estate tax exemptions, sizable estates with values approaching the lifetime gift and estate tax exemption limit may face federal and state estate taxes, particularly for homeowners in high-cost areas, where rising home values could push their estates into taxable territory. This makes QPRTs particularly valuable for those whose primary or vacation homes represent a significant portion of their net worth.

Key Benefits of a QPRT Strategy

A notable benefit of a QPRT is the removal of the residence, along with any future appreciation, from the grantor’s estate. This means the full value of the property at the time of the grantor’s death is not included in the estate for estate tax purposes. This can result in substantial estate tax savings, especially if the property appreciates in value over the term of the trust.

The tax savings can be substantial. Assuming the residence is valued at $1,000,000 and the transfer is made in the current month, based on IRS tables, you would be treated as having made a gift to your children valued at only $346,060. Because the estate tax rate can approach or even surpass 50%, this would obviously result in significant estate tax savings.

Additional benefits include:

  • During the term of the QPRT, the grantor retains the right to live in and use the residence. This allows the grantor to continue enjoying the residence without disruption, while simultaneously planning for its future transfer.
  • Because a QPRT is an irrevocable trust and the residence would no longer belong to the donor, the donor’s creditors would not be able to execute a judgment lien on the residence. Thus, a QPRT provides excellent asset protection benefits.
  • All of the future appreciation of the residence will be transferred to the children estate and gift tax-free. A QPRT, as a result, is a powerful tool for freezing the value of your estate.

Important Considerations and Risks

While QPRTs offer significant benefits, they’re not without risks and limitations. A QPRT is a “bet-to-live” strategy, meaning you must survive the trust term to receive the estate tax advantages. If not, the property is returned to the taxable estate. This makes the selection of the trust term crucial—it should be long enough to provide meaningful tax benefits but short enough that you’re likely to survive it.

Other important considerations include:

  • Once your designated trust term ends, you legally lose access. However, you may rent the residence from your beneficiary at fair market value, which would help transfer additional assets to your heirs without affecting your annual gift exclusion.
  • Your heir won’t receive a step-up in cost basis: If the beneficiary sells the home after the trust term ends, any gains will be calculated using the home’s fair market value at the time of the trust’s creation.
  • Depending on where you live, transferring your property to a QPRT could nullify any state and local property tax exemptions, meaning you would be responsible for potentially higher property taxes during the trust’s term.

Working with Experienced Estate Planning Professionals

QPRTs are complex and not without risks, so it’s best to discuss your situation and goals with an experienced CPA or estate-planning attorney. The success of a QPRT depends on careful planning, proper documentation, and ongoing administration.

At Fratello Law, founded by attorney Cheryl L. Fratello in 2012, the firm specializes in trusts and estates, elder law, and real estate matters. The firm takes pride in focusing on each client’s individual needs and taking the time to understand those specific needs. They are a small firm with a big heart. With offices in both Nassau and Suffolk Counties, their attorneys are privileged to serve clients in Long Island, Queens, Brooklyn and Manhattan. The firm takes pride in focusing on each client’s individual needs and taking the time to understand those specific needs.

When considering a QPRT, it’s essential to work with a knowledgeable trust attorney who can evaluate your specific situation, help you understand the risks and benefits, and ensure proper implementation of your estate planning strategy.

Is a QPRT Right for You?

QPRTs work best for individuals who:

  • Own valuable real estate that represents a significant portion of their estate
  • Are in good health and likely to survive the trust term
  • Want to continue living in their home for a specified period
  • Wish to pass real estate to the next generation at reduced transfer tax costs
  • Own property that is likely to appreciate significantly over time

If you survive the trust term, the full value of the residence, and all subsequent appreciation, will pass to your beneficiaries at a substantially discounted estate and gift tax cost. In today’s environment of rising property values and evolving tax laws, a QPRT can be an invaluable tool for preserving family wealth and ensuring your home becomes a lasting legacy rather than a tax burden.

Given the complexity of QPRT planning and the importance of proper implementation, consulting with experienced estate planning professionals is crucial. The right guidance can help you determine whether a QPRT aligns with your goals and circumstances, ensuring that your estate planning strategy effectively protects both your assets and your family’s future.